No reserve for rainy days

Australian Financial Review

18 November 2004

The recent receipt by the United Nations of Russia’s formal ratification of the Kyoto protocol has started a 90-day countdown. The protocol will come into force on February 16, 2005, with Australia and the United States as the only major countries that have failed to ratify.

At the same time, the scientific evidence of human-caused global warming has become overwhelming. The last piece of serious evidence against the global warming hypothesis was the satellite data on temperatures in the upper atmosphere, first analysed by John Christy of the University of Alabama. Ten years ago, Christy’s data showed declining temperatures in the troposphere, the opposite of the surface trend and of the predictions of climate models. Sceptics used the data to suggest that the models, or the surface data, were wrong.

But improvements in analysis and more data have reversed this finding. Christy’s data now shows an upward trend, though not as rapid as that in the surface data. Alternative analyses show a stronger upward trend. This work has been reinforced by hundreds of other studies, and Christy himself has acknowledged the reality of human caused global warming (though he still thinks it will be less damaging than is suggested by standard models).

There are of course, plenty of people who will stick to a self-described ‘sceptical’ position, on the basis of ideological commitments, financial self-interest or simple ignorance. However, the number of independent, practising climate scientists around the world who agree with them could be counted in the fingers of one hand. In these circumstances, the ‘sceptical’ position is one of faith-based wishful thinking.

These developments have fatally undermined the Howard government’s position, which involves committing Australia to reach the Kyoto targets for reductions in emissions, while not ratifying the treaty. Such a position made some sense while there was a reasonable chance that the whole problem would go away or if there was a chance to produce some alternative policy option more favourable to Australia.

It is now as clear as it is ever going to be that the climate change problem is not going to vanish. As for alternative policy options, they have been doomed by the unwillingness of the Bush Administration to take any serious action. The most promising such option was the McKibben-Wilcoxen plan, put forward by Australian economist Warwick McKibben and his US colleague Peter Wilcoxen plan.

A crucial argument for the McKibben-Wilcoxen plan was that, because it fixed the unit cost of mitigation, it would be more appealing to reluctant Kyoto signatories like the US. But the Bush Administration wasn’t interested, and once the Kyoto protocol is in force, no one else will be either.

Under these circumstances, a policy of meeting the Kyoto targets but not ratifying the protocol leaves Australia with all the costs of Kyoto and few of the benefits. Most obviously, Australian businesses are effectively excluded from international trade in emissions rights. With Australia having taken a leading role in pushing reluctant European governments to adopt a system of tradable emissions, rather than fixed national targets, this is a perverse outcome.

This point was illustrated by the recent estimate of the Australian Farm Institute that, in the absence of tradable permits, restrictions on land clearing were costing Australian farmers $600 million per year. While there are complex issues involved here, it is evident that the sooner we implement a tradeable permits system, the sooner we can move towards a rational policy on climate change.

Our failure to ratify Kyoto also weakens our bargaining position in relation to the really tough issue: what to do to reduce emissions beyond the Kyoto targets when the current bargaining period expires in 2012. Our government expended a lot of diplomatic capital driving the hardest possible bargain on the current targets. Whereas most other developed nations agreed to reduce emissions below 1990 levels, we demanded, and got an 8 per cent increase. Clearly, if we are not signatories, we can’t expect anything like this generous treatment next time around.

Sooner or later, the reality of global warming, and the need for international support on other issues, will force the US to ratify Kyoto. Because of its central importance as the world’s largest energy user, the US will undoubtedly get the chance to come in on favourable terms, no matter how long it waits. The same is not true for Australia. If we don’t grab the favorable terms we secured at Kyoto, we will certainly not be offered the same chance next time around.

John Quiggin is an Australian Research Council
Federation Fellow in Economics and Political Science at the University of Queensland.